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Optimal Nonlinear Taxation of Income and Education Expenditures

Author

Listed:
  • Jang-Ting Guo

    () (Department of Economics, University of California Riverside)

  • Alan Krause

    () (Department of Economics and Related Studies, University of York)

Abstract

Despite using a variety of models and assumptions, the existing literature has overwhelmingly concluded that education policy should be regressive. In this paper, we examine a two-period model in which the government may impose non- linear taxes on both labour income and education expenditures. Individuals un- dertake education in the Örst period to increase their second-period wages. Our main result is that optimal education policy in our model is progressive. SpeciÖ- cally, if the government can commit, it is optimal for high-skill individuals to face a zero marginal tax rate on their education expenditures, while that for low-skill individuals is negative. If the government cannot commit, the optimal marginal tax rate on education expenditures by high-skill individuals is positive, while that for low-skill individuals remains negative.

Suggested Citation

  • Jang-Ting Guo & Alan Krause, 2010. "Optimal Nonlinear Taxation of Income and Education Expenditures," Working Papers 201008, University of California at Riverside, Department of Economics, revised Aug 2010.
  • Handle: RePEc:ucr:wpaper:201008
    as

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    File URL: http://economics.ucr.edu/repec/ucr/wpaper/10-08.pdf
    File Function: First version, 2010
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    References listed on IDEAS

    as
    1. Gianni de Fraja, 2002. "The Design of Optimal Education Policies," Review of Economic Studies, Oxford University Press, vol. 69(2), pages 437-466.
    2. Jang‐Ting Guo & Alan Krause, 2011. "Optimal Nonlinear Income Taxation with Habit Formation," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 13(3), pages 463-480, June.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Jang-Ting Guo & Alan Krause, 2018. "Changing social preferences and optimal redistributive taxation," Oxford Economic Papers, Oxford University Press, vol. 70(1), pages 73-92.
    2. Guo, Jang-Ting & Krause, Alan, 2015. "Dynamic nonlinear income taxation with quasi-hyperbolic discounting and no commitment," Journal of Economic Behavior & Organization, Elsevier, vol. 109(C), pages 101-119.
    3. Alan Krause, 2015. "On Redistributive Taxation under the Threat of High-Skill Emigration," Discussion Papers 15/21, Department of Economics, University of York.
    4. Guo, Jang-Ting & Krause, Alan, 2015. "Dynamic income taxation without commitment: Comparing alternative tax systems," Economic Modelling, Elsevier, vol. 47(C), pages 319-326.
    5. repec:ebl:ecbull:eb-17-00175 is not listed on IDEAS
    6. Shigeo Morita, 2014. "Optimal income taxation without commitment: policy implications of durable goods," Discussion Papers in Economics and Business 14-32, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
    7. repec:spr:sochwe:v:48:y:2017:i:4:d:10.1007_s00355-017-1038-8 is not listed on IDEAS
    8. Giacomo Valletta, 2014. "Health, fairness and taxation," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 43(1), pages 101-140, June.
    9. Shigeo Morita, 2014. "The time consistent public goods provision," Discussion Papers in Economics and Business 14-31, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).

    More about this item

    Keywords

    education policy; dynamic nonlinear taxation; commitment.;

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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